Debit Card vs. Charge and Credit Cards

Here's the difference between these forms of payment...

In
today's society, more and more purchases are being made with 'plastic'. The main
reason: plastic is safer and more convenient than cash. There are three
forms of plastic made available to consumers; debit, credit and charge cards.
The words are often used interchangeably, although they are, in fact, different
ways to make purchases. Let's examine the differences between them:

Debit Cards:

A debit card allows you to gain immediate
access to money in a bank account through the use of electronic fund transfers.
A debit card is often referred to as an 'ATM card' and is available at almost
every major bank. As long as it contains a Visa or Mastercard logo, a debit card
can be used anywhere 'standard' credit cards are accepted. Here's the PROS and
CONS:

PROS:

Obtaining a debit card is often
easier than getting a credit or charge card. If you qualify to open a bank account,
you can usually get a debit card.

Unlike writing a check, using a debit
card prevents you from having to show identification or give out personal information
since you use a PIN number to authorize transactions.

Using a debit card
can prevent you from getting into debt. Unlike credit cards, you can only spend
money that's available in your account. You don't have to worry about paying bills
or missing payments since your funds immediately pay for new charges.

Using a debit
card can make balancing your account tricky if you don't keep receipts or record
transactions in a timely fashion. It is easy to forget, for example, when you
pay at the gas pump with a debit card and drive off without your receipt. If you
accidentally overdraw your account-- you could end up paying hefty fees.

The fact that you
must pay off the balance each month helps to keep your overall debt down. Using
a charge card may help you stay within your budget.

Charge cards often
waive a set credit limit or allow for a very generous one. This is an big advantage
to anyone who uses credit for business expenses.

Charge cards offer many
rewards and are often more generous than credit card rewards.

Comprehensive,
detailed expense records that allow for easier tracking of your purchase history.
Annual records that specify categories of purchases may be of benefit to businesses.

You'll pay no interest charges (but an annual fee usually applies).

CONS:

Since
the balance is paid if full each month, you'll be limited if you need additional
funds.

If you aren't able to pay your bill in full by the end of the month,
there are huge fees and penalties on any unpaid balances.

Credit
Cards:

Like a loan, purchases made with a credit card are paid with a pre-approved
line of credit. Each month you can choose to pay the balance in full or pay only
the minimum and carry over the remaining balance to the next month's statement.
Of course, you'll be charged interest for this privilege. As long as you make
regular, on-time payments-- you're account will remain in good-standing and you
can continue to carry a balance each month.

PROS:

Credit cards offer greater flexibility and are often accepted at more locations
worldwide than charge or debit cards.

Great in case of emergencies! The
option to delay repayment can be helpful in times of need.

If
you can't payoff new charges by the end of the month, you'll pay interest charges
on the remaining balance you carry forward.

May be too convenient for
some people! Misuse may lead to debt and / or a poor credit.

Late fees
ranging from $20-$40 may apply for late bill payments. Plus, your interest rate
could increase (as high as 20% or more!) if you're late or miss a payment.

A
favorite target for scam artists. Credit cards or credit card numbers may be stolen
and used fraudulently by thieves and crooks.

Whether you choose a
debit card, a charge card, a credit card (or all three!)-- understanding the pros
and cons of each type of payment method will help you make the appropriate decision
for your next transaction. Evaluate how you plan on paying for your new purchases
to determine which option is best. If you're going to use a charge card or credit
card, make sure you can make the required payments to avoid penalties and prevent
damage to your credit.